Sol Price
Founder of Fedmart and Price Club, the father of the warehouse club
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Sol Price was a San Diego lawyer turned retailer who founded Fedmart and Price Club and invented the membership warehouse club that Costco, Sam's Club and Home Depot grew from. The lesson most worth taking from him is how far a customer-first model with thin markups, few items and well-taught staff can go, and how weak execution and lost focus let better operators win with his own ideas.
You train an animal, you teach a person.
Sol Price: The Founder Who Taught Jim Sinegal, Sam Walton, Jeff Bezos, and Bernie Marcus
Sol Price: the story and the lessons
1Sol Price's path from the Bronx to business
Price was a shy, teased child who became an overachiever. A drooping eyelid drew teasing, and Price says he compensated by overachieving in school. He skipped two grades and held his own with adults at chess.
A teacher warned his mother he could become a gangster or do much good. Born to immigrant parents from a small Russian village and raised in the Bronx, he was the first in his family to graduate from college.
His father's idleness gave him something to prove. After moving to California in 1927, his father never worked again and lived on $500 a month in disability pay. His parents divorced in 1935.
Price said his father lived "in grave danger of getting well." His future in-laws doubted him because of his father, so he and Helen eloped; they stayed married for 70 years.
Price built his law practice by working free for charities. As a young San Diego lawyer with no money, he became the lawyer for the Jewish charities and never charged them. Some of the people he met became paying clients.
The lesson he took from two older attorneys was that everything moves with relationships.
Wartime double shifts taught him to treasure time. After Pearl Harbor he worked at his law office from 8 am to noon, then at Consolidated Aircraft until 11:15 pm. He said he actually enjoyed it.
He later had his granddaughter add up her sleep, study and meals against the 168 hours in a week to prove she had enough time. A sign on his desk read "do it now."
His clients taught him business better than law school did. He disliked law and found that clients with less schooling were richer and had plain common sense. Isidor Teacher, a real estate investor with no formal education, was one.
Facing a ruinous divorce threat, Teacher said "I can swim better than she can," and Price never again feared a tough negotiation. "I really learned far more from like clients than I ever learned in law school."
2How Sol Price built Fedmart from other people's ideas
Price assembled his model by studying niches others had found. San Diego's Seven C's Locker Club stored sailors' uniforms and sold them goods, showing a big store could win by serving one focused segment.
Price said it showed a store selling many goods under one roof could succeed "catering to a focused segment of the marketplace."
Fedco's 5,000 San Diego members showed him the demand. While finding a tenant for his mother-in-law's vacant warehouse, a client took him to Fedco in Los Angeles, a nonprofit membership store for federal employees. About 5,000 San Diego members drove 200 miles round trip to shop there.
Price and his two clients asked Fedco for a joint venture and were refused, which left them free to build their own version.
Not knowing retail freed Price to break its rules. Price and his partners had no retail experience, so they ignored 1950s conventions on membership cards, warehouses and discounting.
"We didn't know what wouldn't work or what we couldn't do."
He capped his downside before opening. A handful of investors put in $50,000, including $5,000 of Price's own, while he kept practicing law. He signed a 10 year lease with the right to cancel after one year.
He joked that it took $50,000 to open when they knew nothing and $5 million five years later when they were experienced.
Fedmart tripled its first year target. Open only to military and government employees, the store did three times the $1 million Price hoped for in year one.
Rivals tried to stop it. When a state bedding inspector arrived asking questions unrelated to pillows, Price told him to take his best shot and never heard from him again.
3Sol Price's rules for running a store
Customers came first, employees second, stockholders third. Price called the retailer's link to the member a professional fiduciary relationship. He left law at 40 driven by giving the best deal and fair pay, not by having the most stores.
"Our first duty is to our customers our second duty is to our employees and our third duty is to our stockholders."
He marked goods up about 12% when rivals took 36 to 50%. He bought as cheaply as possible, marked up only enough to cover low costs and earned most of his money from membership fees, which put him on the customer's side instead of the supplier's.
Jim Sinegal later built Costco on the same logic, earning almost all its profit from fees.
Price bet customers care more about price than selection. Price Club carried about 3,000 items against roughly 50,000 at a typical discounter. He called the sales given up an "intelligent loss of sales."
Stocking only the 8 ounce size of 3-in-1 oil lost a few sales but gave most buyers a better deal. Fewer items cut labor in ordering, receiving, stocking, checkout and paying vendors, and payroll and benefits were about 80% of operating cost.
Price paid one wage in every city. In San Antonio, where local employers paid about 50 cents an hour, he paid $1, the same as San Diego. He thought paying less for the same work was unethical.
The simple rule meant no pay formula to debate at each new store, and everyone wanted to work at Fedmart.
4Sol Price's fights against price fixing and prejudice
Price used membership to get around fair trade price floors. Fair trade laws forced stores to charge manufacturers' suggested prices. E.J. Korvette made shoppers members in 1948 to sidestep them, and Price copied it.
He thought the laws were absurd and helped get them repealed; Congress ended them by 1975.
He opened the first pharmacy inside a discount store despite threats. Pharmacist Wayne Mallerie sold drugs cheaper at Fedmart. Wholesalers were pressured not to deliver, and Mallerie was expelled from pharmacy groups, got death threats and had a rock thrown through his window.
Price kept going because lower prices were better for customers. Costco still sells prescription drugs cheaper than almost all competitors.
Private labels and court fights extended the discounts. FM brand laundry detergent sold at about half the national brand price. When California challenged his 12% markup on liquor, Fedmart argued federal law overrode state law and the judge agreed.
Price refused to sign a mortgage requiring segregated bathrooms. A major insurance company's mortgage required separate bathrooms by race. He said he would not sign unless it was removed, and the lender dropped it.
5How Sol Price taught people instead of training them
Price taught employees to act as his alter egos. He disliked manuals, believing they substitute for thinking, and taught staff why each job mattered so they would do it as well as he would.
Sinegal carried the idea on: "if you're not spending 90% of your time teaching you're not doing your job."
Jim Sinegal learned everything he knew from Price. Sinegal started at Fedmart at 18, carrying a mattress for $1.25 an hour. Price shouted at him to put it down before he broke his back.
A bystander explained, "he's not mad, that's just Sol." Price later chose Sinegal as a buyer because he saw him as a world class operator.
His praise was rare enough that Sinegal waited 50 years for it. Shortly before he died, Price wrote Sinegal that he would have been a great achiever under any circumstance.
Sinegal said compliments from Price came about as often as Halley's comet.
His son Robert says Price taught him how to think. Robert worked beside him for 45 years and says his father taught him to check things for himself, to be humble and to care for people.
They argued for decades, with Robert taking the opposite side because nobody else would.
6How Sol Price lost Fedmart and started Price Club
Better operators beat Fedmart with Price's own ideas. After almost 20 years, Walmart, Target and Kmart were running stores better. Price admitted he was not a good operator and looked for a buyer.
Price sold 64% to Hugo Mann and was fired. Mann, a German hypermarket owner, wooed Price and Robert with a lavish trip, then gave a 90 minute tirade at the first board meeting. Price was removed from the company he founded.
"The warning signs seemed so obvious but at the time we were caught up in the Euphoria of making a big deal."
Amsterdam's Macro stores gave him the Price Club idea. Macro ran warehouses over 200,000 square feet open only to proven business owners. Price Club copied it as a no frills warehouse for small businesses, paid by check or cash.
A $25 yearly fee pooled the buying power of tens of thousands of members in a building of racks, high ceilings and concrete floors, with suppliers delivering direct.
The $1.50 hot dog and soda began at Price Club. Costco kept the price unchanged for decades.
When an aide urged a raise, Sinegal answered, "if you raise the price of the hot dog I will kill you."
7How Sol Price's generosity created his rivals
Price sent Bernie Marcus off to build Home Depot. Marcus, just fired from Handy Dan, toured Price Club in 1978. Price told him to combine his hardware knowledge with the warehouse format, and Marcus opened Home Depot in 1979 with Arthur Blank.
Sam Walton studied Price Club and opened Sam's Club. Price gave Walton information generously, and the first Sam's Club opened in Oklahoma City in 1983. Walton said he stole more ideas from Price than from anyone.
Price believed competition gave consumers a better deal and sorted strong operators from weak ones, though he may have had second thoughts as clones multiplied.
Up to a dozen retailers copied his concept. Jeff Bezos and the founder of Trader Joe's are also named among those who took his ideas.
Asked how it felt to father an industry, Price said, "I should have worn a condom."
8Why Price Club fell behind and sold to Costco
Price Club wasted a 7 year head start. Costco and Sam's expanded aggressively into its markets while Price Club grew tentatively, opening where rivals were already established.
"Rather than sticking to a well-planned business strategy many decisions were being made reactively in response to what the competition was doing."
A push into real estate pulled focus from the core. Retailers wanted to sit next to Price Club, so Price, who loved real estate, pushed to develop and lease space. Executives and investors objected because the returns were far lower.
Price sold to Sinegal knowing his own weakness was operations. He saw his and Robert's strength as creative and was tired of Wall Street's demand for growth. After Robert's teenage son Aaron died of a brain tumor, he chose Costco over Sam Walton's offer, and the companies merged in 1993.
His greatest worry was Robert losing his son and his business together. Robert negotiated the deal with Sinegal, who loved Price.
Sol Price: The Founder Who Taught Jim Sinegal, Sam Walton, Jeff Bezos, and Bernie Marcus
Sol Price built the membership warehouse model by borrowing ideas from small niches, selling with thin markups and teaching his people to think like owners. His story shows how generous idea-sharing and weak execution let Jim Sinegal and Sam Walton outrun him, and why he sold Price Club to Costco.
Price was a shy, teased child who became an overachiever. A drooping eyelid drew teasing, and Price says he compensated by overachieving in school. He skipped two grades and held his own with adults at chess.
A teacher warned his mother he could become a gangster or do much good. Born to immigrant parents from a small Russian village and raised in the Bronx, he was the first in his family to graduate from college.
His father's idleness gave him something to prove. After moving to California in 1927, his father never worked again and lived on $500 a month in disability pay. His parents divorced in 1935.
Price said his father lived "in grave danger of getting well." His future in-laws doubted him because of his father, so he and Helen eloped; they stayed married for 70 years.
Price built his law practice by working free for charities. As a young San Diego lawyer with no money, he became the lawyer for the Jewish charities and never charged them. Some of the people he met became paying clients.
The lesson he took from two older attorneys was that everything moves with relationships.
Wartime double shifts taught him to treasure time. After Pearl Harbor he worked at his law office from 8 am to noon, then at Consolidated Aircraft until 11:15 pm. He said he actually enjoyed it.
He later had his granddaughter add up her sleep, study and meals against the 168 hours in a week to prove she had enough time. A sign on his desk read "do it now."
His clients taught him business better than law school did. He disliked law and found that clients with less schooling were richer and had plain common sense. Isidor Teacher, a real estate investor with no formal education, was one.
Facing a ruinous divorce threat, Teacher said "I can swim better than she can," and Price never again feared a tough negotiation. "I really learned far more from like clients than I ever learned in law school."
Price assembled his model by studying niches others had found. San Diego's Seven C's Locker Club stored sailors' uniforms and sold them goods, showing a big store could win by serving one focused segment.
Price said it showed a store selling many goods under one roof could succeed "catering to a focused segment of the marketplace."
Fedco's 5,000 San Diego members showed him the demand. While finding a tenant for his mother-in-law's vacant warehouse, a client took him to Fedco in Los Angeles, a nonprofit membership store for federal employees. About 5,000 San Diego members drove 200 miles round trip to shop there.
Price and his two clients asked Fedco for a joint venture and were refused, which left them free to build their own version.
Not knowing retail freed Price to break its rules. Price and his partners had no retail experience, so they ignored 1950s conventions on membership cards, warehouses and discounting.
"We didn't know what wouldn't work or what we couldn't do."
He capped his downside before opening. A handful of investors put in $50,000, including $5,000 of Price's own, while he kept practicing law. He signed a 10 year lease with the right to cancel after one year.
He joked that it took $50,000 to open when they knew nothing and $5 million five years later when they were experienced.
Fedmart tripled its first year target. Open only to military and government employees, the store did three times the $1 million Price hoped for in year one.
Rivals tried to stop it. When a state bedding inspector arrived asking questions unrelated to pillows, Price told him to take his best shot and never heard from him again.
Customers came first, employees second, stockholders third. Price called the retailer's link to the member a professional fiduciary relationship. He left law at 40 driven by giving the best deal and fair pay, not by having the most stores.
"Our first duty is to our customers our second duty is to our employees and our third duty is to our stockholders."
He marked goods up about 12% when rivals took 36 to 50%. He bought as cheaply as possible, marked up only enough to cover low costs and earned most of his money from membership fees, which put him on the customer's side instead of the supplier's.
Jim Sinegal later built Costco on the same logic, earning almost all its profit from fees.
Price bet customers care more about price than selection. Price Club carried about 3,000 items against roughly 50,000 at a typical discounter. He called the sales given up an "intelligent loss of sales."
Stocking only the 8 ounce size of 3-in-1 oil lost a few sales but gave most buyers a better deal. Fewer items cut labor in ordering, receiving, stocking, checkout and paying vendors, and payroll and benefits were about 80% of operating cost.
Price paid one wage in every city. In San Antonio, where local employers paid about 50 cents an hour, he paid $1, the same as San Diego. He thought paying less for the same work was unethical.
The simple rule meant no pay formula to debate at each new store, and everyone wanted to work at Fedmart.
Price used membership to get around fair trade price floors. Fair trade laws forced stores to charge manufacturers' suggested prices. E.J. Korvette made shoppers members in 1948 to sidestep them, and Price copied it.
He thought the laws were absurd and helped get them repealed; Congress ended them by 1975.
He opened the first pharmacy inside a discount store despite threats. Pharmacist Wayne Mallerie sold drugs cheaper at Fedmart. Wholesalers were pressured not to deliver, and Mallerie was expelled from pharmacy groups, got death threats and had a rock thrown through his window.
Price kept going because lower prices were better for customers. Costco still sells prescription drugs cheaper than almost all competitors.
Private labels and court fights extended the discounts. FM brand laundry detergent sold at about half the national brand price. When California challenged his 12% markup on liquor, Fedmart argued federal law overrode state law and the judge agreed.
Price refused to sign a mortgage requiring segregated bathrooms. A major insurance company's mortgage required separate bathrooms by race. He said he would not sign unless it was removed, and the lender dropped it.
Price taught employees to act as his alter egos. He disliked manuals, believing they substitute for thinking, and taught staff why each job mattered so they would do it as well as he would.
Sinegal carried the idea on: "if you're not spending 90% of your time teaching you're not doing your job."
Jim Sinegal learned everything he knew from Price. Sinegal started at Fedmart at 18, carrying a mattress for $1.25 an hour. Price shouted at him to put it down before he broke his back.
A bystander explained, "he's not mad, that's just Sol." Price later chose Sinegal as a buyer because he saw him as a world class operator.
His praise was rare enough that Sinegal waited 50 years for it. Shortly before he died, Price wrote Sinegal that he would have been a great achiever under any circumstance.
Sinegal said compliments from Price came about as often as Halley's comet.
His son Robert says Price taught him how to think. Robert worked beside him for 45 years and says his father taught him to check things for himself, to be humble and to care for people.
They argued for decades, with Robert taking the opposite side because nobody else would.
Better operators beat Fedmart with Price's own ideas. After almost 20 years, Walmart, Target and Kmart were running stores better. Price admitted he was not a good operator and looked for a buyer.
Price sold 64% to Hugo Mann and was fired. Mann, a German hypermarket owner, wooed Price and Robert with a lavish trip, then gave a 90 minute tirade at the first board meeting. Price was removed from the company he founded.
"The warning signs seemed so obvious but at the time we were caught up in the Euphoria of making a big deal."
Amsterdam's Macro stores gave him the Price Club idea. Macro ran warehouses over 200,000 square feet open only to proven business owners. Price Club copied it as a no frills warehouse for small businesses, paid by check or cash.
A $25 yearly fee pooled the buying power of tens of thousands of members in a building of racks, high ceilings and concrete floors, with suppliers delivering direct.
The $1.50 hot dog and soda began at Price Club. Costco kept the price unchanged for decades.
When an aide urged a raise, Sinegal answered, "if you raise the price of the hot dog I will kill you."
Price sent Bernie Marcus off to build Home Depot. Marcus, just fired from Handy Dan, toured Price Club in 1978. Price told him to combine his hardware knowledge with the warehouse format, and Marcus opened Home Depot in 1979 with Arthur Blank.
Sam Walton studied Price Club and opened Sam's Club. Price gave Walton information generously, and the first Sam's Club opened in Oklahoma City in 1983. Walton said he stole more ideas from Price than from anyone.
Price believed competition gave consumers a better deal and sorted strong operators from weak ones, though he may have had second thoughts as clones multiplied.
Up to a dozen retailers copied his concept. Jeff Bezos and the founder of Trader Joe's are also named among those who took his ideas.
Asked how it felt to father an industry, Price said, "I should have worn a condom."
Price Club wasted a 7 year head start. Costco and Sam's expanded aggressively into its markets while Price Club grew tentatively, opening where rivals were already established.
"Rather than sticking to a well-planned business strategy many decisions were being made reactively in response to what the competition was doing."
A push into real estate pulled focus from the core. Retailers wanted to sit next to Price Club, so Price, who loved real estate, pushed to develop and lease space. Executives and investors objected because the returns were far lower.
Price sold to Sinegal knowing his own weakness was operations. He saw his and Robert's strength as creative and was tired of Wall Street's demand for growth. After Robert's teenage son Aaron died of a brain tumor, he chose Costco over Sam Walton's offer, and the companies merged in 1993.
His greatest worry was Robert losing his son and his business together. Robert negotiated the deal with Sinegal, who loved Price.